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It can be confusing to know when and how to invest. As a result, you may be tempted to hesitate, fearing you’ll make a mistake or choose the wrong time to invest. But waiting is rarely a good financial strategy. Instead, here are four ways to put time on your side.
If your goals are long-term – for example, retirement or paying a child’s education – then you need to start investing sooner, not later. That’s because one of the most important drivers of success is the power of compounding, which puts time to work for you.
For example, let’s say your goal is to invest enough to reach $1 million at age 65. If you wait 10 years to start saving for retirement, you’ll need to at least double the amount you invest each month to reach that goal. As the chart shows, the less time you have, the more money you’ll need to contribute – showing why those who start sooner are more likely to achieve their financial goals.
Although you may think that having more in cash is safer, too much in cash may mean you’re taking more risk than you realize. Since returns on cash are below inflation, you’d be falling behind every month. And while overall inflation remains near 2%, your personal inflation rate may be higher. That’s because it depends on your personal living expenses and where you live, among other things.
You may feel more comfortable with cash because it has less exposure to short-term market moves. But remember that moving into and out of cash requires making two decisions correctly: when to get out and when to get back in.
It’s a good idea to keep some cash on hand for emergencies and short-term living expenses. But too much in cash can be expensive, just like too little.
You might think it’s a smart idea to wait for a better time to invest, especially when the market is more volatile. Emotions tend to drive short-term market moves, creating opportunities to add quality investments at lower prices.
No one can guess the direction of short-term moves, and you may think the future looks murky. But stocks have generally risen over time, and we think long-term prospects are bright, so delay works against you, not for you.*
Procrastination won’t help you handle market volatility, but adjusting your mix of stocks and bonds can. That’s because bond values frequently rise when stocks drop, so your diversified portfolio doesn’t fall or rise as much as the stock market. Your portfolio should include the right mix of stocks and bonds for your time horizon and comfort with risk.
The more risk you’re willing to take, the greater potential returns you may receive. Generally speaking, the more stock investments you own, the more ups and downs you’ll experience – but you’ll also have the potential for higher long-term returns. The key is striking the right balance for you so you can stay disciplined and comfortably invested when markets are volatile.
A short-term market decline doesn’t change your long-term goals. To reach those goals, you’ll need to combine money with time – and you may need to consider adding more money or increasing your time frame to stay on track.
If you haven’t reviewed your current situation, don’t delay. Waiting can be costly, and discipline is key. Together with your financial advisor, you can address your concerns by adjusting your mix of stocks and bonds if necessary or identifying opportunities you’ve overlooked to help put time on your side.
* Past performance is not a guarantee of future results. Investing in stocks involves risks. The value of your shares will fluctuate, and you may lose principal. Diversification does not guarantee a profit or protect against loss.